EX-99.1 2 d19454exv99w1.htm PRESS RELEASE exv99w1
 

         

Exhibit 99.1

Encore Acquisition Company Reports Record Third Quarter 2004 Financial and Operating Results

FORT WORTH, Texas—(BUSINESS WIRE)—October 26, 2004

Encore Acquisition Company (NYSE:EAC) today reported record quarterly net income of $21.0 million ($0.64 per diluted share) for the third quarter of 2004. This represents an increase of 33% over third quarter 2003 net income of $15.8 million ($0.52 per diluted share). Encore’s production volumes achieved record levels, averaging 25,779 BOE per day during the third quarter of 2004 as compared to 22,663 BOE per day during the third quarter of 2003, an increase of 14%. Production volumes for the current quarter were comprised of 18,419 Bbls per day of oil and 44,160 Mcf per day of natural gas. The reported production volumes are net of the net profits interest burden on the Cedar Creek Anticline of 367 BOE per day during the third quarter of 2003 and 1,114 BOE per day in the current quarter. Encore’s record production volumes combined with higher commodity prices during the current quarter give rise to record quarterly oil and natural gas revenues of $79.3 million. This represents a 42% increase over third quarter 2003 oil and natural gas revenues of $55.7 million. Higher commodity prices were reflected in the average net combined price of $33.42 per BOE Encore reported for the third quarter of 2004 as compared to $26.73 per BOE reported for the third quarter of 2003.

“Encore is well positioned; our inventory of development opportunities holds us in good stead. Through future drilling and high-pressure air we should continue to grow production.” stated Jon Brumley, CEO and Chairman.

Lease operations expense increased from $4.70 per BOE reported in the third quarter of 2003 to $5.31 per BOE in the third quarter of 2004. General and administrative expense increased from $0.96 per BOE in the third quarter of 2003 to $1.21 per BOE in the third quarter of 2004. DD&A expense per BOE of $5.38 for the third quarter of 2004 increased from the $4.06 per BOE recorded for the third quarter of 2003. Encore recorded a non-cash derivative fair value expense of $2.3 million ($0.04 per diluted share after-tax) as a result of Statement of Financial Accounting Standards No. 133.

Development Activities:

Encore invested $52.8 million in development projects during the third quarter of 2004, $9.3 million of which was invested in the Company’s high-pressure air injection tertiary recovery projects in the Little Beaver Unit and the Pennel Unit of the Cedar Creek Anticline. The capital was invested in 32 (29.4 net) new operated vertical producing wells, 7 (6.5 net) operated horizontal wells, 8 (7.9 net) operated horizontal re-entry wells and 6 (5.6 net) operated service/injection wells. The Company also participated in the drilling of 19 (2.7 net) non-operated vertical producing wells and 1 (0.02 net) non-operated service well. The Company is currently investing capital on its operated properties with five rigs drilling in the Cedar Creek Anticline and seven in the Company’s other producing areas.

Outlook for Fourth Quarter:

Production in the fourth quarter is expected to be in line with third quarter levels. The Company expects lease operations expense to be approximately $5.35 per BOE, general and administrative expense to be approximately $1.30 per BOE and DD&A expense to be approximately $5.40 per BOE. The Company anticipates an effective tax rate of approximately 36%, with 90% deferred. The Company has budgeted $53.0 million for development projects in the fourth quarter, including $5.0 million relating to the existing HPAI tertiary recovery projects currently underway in the CCA.

Conference Call:

Encore will host a conference call and simultaneous webcast on Wednesday, October 27, 2004 at 9:30 AM CDT. The conference call can be accessed by dialing 877-356-9552 and supplying the title “Encore Acquisition Company Conference Call” and the webcast can be accessed via www.encoreacq.com. A replay of the conference call will be archived and available via Encore’s website at the address above or by dialing 800-642-1687 and entering

 

 

conference ID 1504008. The replay will be available through November 3, 2004. International or local callers can dial 706-679-0419 for the live broadcast or 706-645-9291 for the replay.

About the Company:

Organized in 1998, Encore is a growing independent energy company engaged in the acquisition, development and exploitation of North American oil and natural gas reserves. Encore’s oil and natural gas reserves are in four core areas: the Cedar Creek Anticline of Montana and North Dakota; the Permian Basin of West Texas and Southeastern New Mexico; the Mid Continent area, which includes the Arkoma and Anadarko Basins of Oklahoma, the North Louisiana Salt Basin, the East Texas Basin and the Barnett Shale near Fort Worth, Texas; and the Rocky Mountains. Encore’s latest investor presentation is available on the Company’s website at www.encoreacq.com.

Cautionary Statements:

This press release includes forward-looking statements, which give Encore’s current expectations or forecasts of future events based on currently available information. Forward-looking statements in this press release relate to, among other things, the following: expected production levels and growth; the effect of the Cortez and Overton acquisitions on future earnings, cash flows and production; changes in the Company’s capital budget; future growth; projected lease operations, general and administrative, and DD&A expense; expected capital expenditures and the focus of the Company’s capital program; projected borrowings under the Company’s revolving credit facility; the Company’s expected effective tax rate; and the percentage of tax deferred. However, the assumptions of management and the future performance of Encore are subject to a wide range of business risks and uncertainties and there is no assurance that these statements and projections will be met. Factors that could affect Encore’s business include, but are not limited to: diversion of management’s attention from existing operations while pursuing acquisitions; difficulties completing and integrating acquisitions; complications resulting from increasing the scope and geographic diversity of Encore’s operations; inaccuracies in the assessment of reserves or daily or annual production with respect to acquisitions; inaccuracies in Encore’s assumptions regarding the expected revenues, lease operations expense, production taxes and other items of income and expense related to acquisitions; the amount, nature, and timing of capital expenditures and the drilling of wells; the timing and amount of future production of oil and natural gas; operating hazards; operating costs and other expenses; marketing of oil and natural gas; and other factors detailed in Encore’s most recent Form 10-K and other filings with the Securities and Exchange Commission. If one or more of these risks or uncertainties materialize (or the consequences of such a development changes), or should underlying assumptions prove incorrect, actual outcomes may vary materially from those forecasted or expected. Encore undertakes no obligation to publicly update or revise any forward-looking statements.

Contact:

Encore Acquisition Company, Fort Worth
Roy W. Jageman, 817-339-0861
or
William J. Van Wyk, 817-339-0812

 

 

(All data in thousands, except per share data)

                                 
    Three Months Ended   Nine Months Ended
    September 30,
   September 30,
    2004
   2003
   2004
   2003
Consolidated Statements of Operations Data:
   (unaudited)   (unaudited)
                               
Revenues:
                                
Oil
   $ 58,243     $ 44,538     $ 157,892     $ 131,674  
Natural gas
     21,009       11,186       50,773       31,080  
 
    
 		      
 		      
 		      
 		  
Total revenues
     79,252       55,724       208,665       162,754  
 
    
 		      
 		      
 		      
 		  
Expenses:
                                
Production —
                                
Lease operations
     12,589       9,795       33,752       27,888  
Production, ad valorem, and severance taxes
     8,117       5,449       21,117       16,713  
Depletion, depreciation, and amortization
     12,750       8,471       33,262       23,957  
Exploration
     462       —       2,159       —  
G&A (excluding non-cash stock based compensation)
     2,858       2,006       7,616       6,796  
Non-cash stock based compensation
     796       165       1,413       460  
Derivative fair value (gain) loss
     2,301       18       3,424       (1,818 )
Other operating
     1,369       1,031       3,462       1,913  
 
    
 		      
 		      
 		      
 		  
Total operating expenses
     41,242       26,935       106,205       75,909  
 
    
 		      
 		      
 		      
 		  
Operating income
     38,010       28,789       102,460       86,845  
Interest and other
     (6,469 )     (3,934 )     (16,526 )     (12,058 )
 
    
 		      
 		      
 		      
 		  
Income before income taxes and cumulative effect of accounting change
     31,541       24,855       85,934       74,787  
Current income tax provision
     (1,042 )     (289 )     (3,046 )     (1,647 )
Deferred income tax provision
     (9,485 )     (8,798 )     (26,981 )     (26,024 )
 
    
 		      
 		      
 		      
 		  
Income before cumulative effect of accounting change
     21,014       15,768       55,907       47,116  
Cumulative effect of accounting change, net of taxes
     —       —       —       863  
 
    
 		      
 		      
 		      
 		  
Net income
   $ 21,014     $ 15,768     $ 55,907     $ 47,979  
 
    
 		      
 		      
 		      
 		  
Income before cumulative effect of accounting change per common share:
                                
Basic
   $ 0.65     $ 0.52     $ 1.80     $ 1.57  
Diluted
     0.64       0.52       1.78       1.56  
Net income per common share:
                                
Basic
   $ 0.65     $ 0.52     $ 1.80     $ 1.60  
Diluted
     0.64       0.52       1.78       1.58  
Weighted average common shares outstanding:
                                
Basic
     32,297       30,103       31,074       30,071  
Diluted
     32,735       30,332       31,481       30,274  
 
Condensed Consolidated Statements of Cash Flows:
                                
Operating activities
                                
Net income
                   $ 55,907     $ 47,979  
Adjustments to reconcile net income to net cash provided by operating activities:
                                
Non-cash and other items
                     74,669       54,208  
Changes in operating assets and liabilities
                     (3,476 )     (7,381 )
 
                    
 		      
 		  
Net cash provided by operating activities
                     127,100       94,806  
 
                    
 		      
 		  
Net cash used by investing activities
                     (365,814 )     (123,862 )
Financing activities
                                
Net proceeds from issuance of common stock
                     53,223       —  
Net proceeds from long-term debt
                     181,208       15,000  
Other
                     4,944       1,652  
 
                    
 		      
 		  
Net cash provided by financing activities
                     239,375       16,652  
 
                    
 		      
 		  
Increase (decrease) in cash and cash equivalents
                     661       (12,404 )
Cash and cash equivalents, beginning of period
                     431       13,057  
 
                    
 		      
 		  
Cash and cash equivalents, end of period
                   $ 1,092     $ 653  
 
                    
 		      
 		  
 
   September 30,
2004
   December 31,
2003
                
Condensed Consolidated Balance Sheets:
   (unaudited)                        
Total assets
   $ 1,076,027     $ 672,138                  
 
    
 		      
 		                  
Liabilities
   $ 278,151     $ 134,163                  
Long-term debt
     365,000       179,000                  
Stockholders’ equity
     432,876       358,975                  
 
    
 		      
 		                  
Total liabilities and stockholders’ equity
   $ 1,076,027     $ 672,138                  
 
    
 		      
 		                  
Working capital (a)
   $ (28,591 )   $ (52 )                

(a) Working capital is defined as current assets minus current liabilities.

 

 

                                 
    Three Months Ended   Nine Months Ended
    September 30,
   September 30,
    2004
   2003
   2004
   2003
Selected Financial Data:
                                
 
Production volumes:
                                
Oil (MBbls)
     1,695       1,679       4,994       4,961  
Natural gas (MMcf)
     4,063       2,433       9,796       6,355  
Combined (MBOE)
     2,372       2,085       6,626       6,020  
 
Daily production:
                                
Oil (Bbls/d)
     18,419       18,255       18,226       18,172  
Gas (Mcf/d)
     44,160       26,447       35,751       23,278  
Combined (BOE/d)
     25,779       22,663       24,184       22,052  
 
Average prices:
                                
Oil (per Bbl)
   $ 34.37     $ 26.52     $ 31.62     $ 26.54  
Gas (per Mcf)
     5.17       4.60       5.18       4.89  
Combined (per BOE)
     33.42       26.73       31.49       27.04  
 
Average costs per BOE:
                                
Lease operations expense
   $ 5.31     $ 4.70     $ 5.09     $ 4.63  
Production, ad valorem and severance taxes
     3.42       2.61       3.19       2.78  
DD&A
     5.38       4.06       5.02       3.98  
G&A (excluding non-cash stock based comp)
     1.21       0.96       1.15       1.13  

 

 

Derivative Summary as of September 30, 2004

Oil Derivative Contracts

                                                 
            Average           Average           Average
    Daily   Floor   Daily   Cap   Daily   Swap
    Floor Volume   Price   Cap Volume   Price   Swap Volume   Price
Period
   (Bbls)
   (per Bbl)
   (Bbls)
   (per Bbl)
   (Bbls)
   (per Bbl)
Oct — Dec 2004
     18,000     $ 24.33       6,000     $ 29.37       500     $ 26.48  
Jan — June 2005
     15,500       27.55       3,500       31.89       1,000       25.12  
July — Dec 2005
     12,500       27.84       2,500       31.07       1,000       25.12  
Jan — Dec 2006
     1,000       27.50       1,000       29.88       2,000       25.03  
Jan — Dec 2007
     —       —       —       —       2,000       25.11  

Natural Gas Derivative Contracts

                                                 
            Average           Average           Average
    Daily   Floor   Daily   Cap   Daily   Swap
    Floor Volume   Price   Cap Volume   Price   Swap Volume   Price
Period
   (Mcf)
   (per Mcf)
   (Mcf)
   (per Mcf)
   (Mcf)
   (per Mcf)
Oct — Dec 2004
     20,000     $ 4.07       7,500     $ 6.02       15,000     $ 5.47  
Jan — Dec 2005
     10,000       4.84       5,000       5.97       12,500       4.96  
Jan — Dec 2006
     5,000       4.85       5,000       5.68       12,500       5.02  
Jan — Dec 2007
     —       —       —       —       10,000       4.99  

Interest Rate Swap

                         
Expiration
   Notional
   Encore Pays
   Encore Receives
June 15, 2005
   $ 80,000,000     LIBOR + 3.89%     8.375 %